On a monopoly graph, no economic profit occurs at the intersection of which curves?

On a monopoly graph, no economic profit occurs at the intersection of which curves?

• A. MR and D
• B. ATC and D
• C. ATC and MR
• D. D and AVC

Answer: (B)

Zero economic profit happens when the price equals average total cost. Since profit equals (P − ATC) × Q, if P = ATC, the per-unit profit is zero and total profit is zero as well. On a monopoly graph, the price is read from the downward-sloping demand curve at the chosen output, while ATC is the cost per unit at that output. The point where the demand curve intersects the ATC curve is exactly where P equals ATC, so that's where economic profit is zero. The other intersections don’t pin down zero profit: profit maximization for a monopoly occurs where MR = MC, not where price equals ATC; and price equaling AVC would relate to short-run shutdown considerations rather than zero economic profit with fixed costs included.

Zero economic profit happens when the price equals average total cost. Since profit equals (P − ATC) × Q, if P = ATC, the per-unit profit is zero and total profit is zero as well. On a monopoly graph, the price is read from the downward-sloping demand curve at the chosen output, while ATC is the cost per unit at that output. The point where the demand curve intersects the ATC curve is exactly where P equals ATC, so that's where economic profit is zero. The other intersections don’t pin down zero profit: profit maximization for a monopoly occurs where MR = MC, not where price equals ATC; and price equaling AVC would relate to short-run shutdown considerations rather than zero economic profit with fixed costs included.